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Hong Kong, November 06, 2018 -- Moody's Investors Service has changed the rating outlook of Baidu Inc.
to positive from stable. At the same time, Moody's
has affirmed its A3 issuer and senior unsecured ratings.

RATINGS RATIONALE

"The positive outlook reflects our expectation that Baidu's
persistent solid operating performance will support a further strengthening
of its credit profile over the next 12 to 18 months," says
Lina Choi, a Moody's Vice President and Senior Credit Officer.

"And the rating affirmation reflects our expectation that the deconsolidation
of the financial service business will reduce Baidu's contingent
liabilities," adds Choi, who is also Moody's Lead Analyst
for Baidu.

Baidu's core business has continued to strengthen in the nine months
ended 30 September 2018, with 30% revenue growth and 22%
EBITDA growth from the same period last year. Revenue and EBITDA
growth for Baidu's core business were driven by both robust user
traffic growth and increased revenue per search marketing customer.

Moody's expects these positive operating trends to continue,
leading to 15%-20% revenue growth and about 10%
EBITDA growth in 2019. This solid growth is driven by Baidu's
artificial intelligence (AI) initiatives, which further enhance
its product offerings and draw more users and customers to its platform,
thus increasing monetization potential.

In August 2018, Baidu completed the divestiture of its financial
service business, Du Xiaoman Financial, removing the entity's
assets and liabilities from its consolidated financial statements.
As a result of the deconsolidation, Baidu now holds an approximate
41% stake in Du Xiaoman. New shareholders of Du Xiaoman
include TPG, The Carlyle Group, CITIC Private Equity,
ABC International Holdings, and Taikang Group.

Baidu's reported debt decreased to RMB49.3 billion at the
end of September 2018 from RMB81.6 billion at the end of June 2018,
mainly due to the removal of RMB27 billion liabilities related to Du Xiaoman.

The solid performance of its core business and improved capital structure
following the deconsolidation of Du Xiaoman have enhanced Baidu's
already strong credit profile. Moody's expects the company's
leverage to fall below 1.5x by the end of 2019, from 1.6x
at the end of 2018.

Moody's also expects the company's net cash position to remain
solid above RMB50 billion at the end of 2019, compared to RMB55
billion at 30 September 2018 -- representing a strong financial profile
when compared with most A3 rated peers.

Baidu's A3 issuer rating reflects the company's position as the leading
Chinese language Internet search engine, and the largest provider
of online advertising services in China. It also takes into consideration
Baidu's steady free cash flow generation, disciplined acquisition
appetite, and track record of recovering from temporary business
challenges.

Baidu's ratings could be upgraded if: (1) it maintains its strong
financial profile while growing its core search business through the monetization
of new product initiatives; (2) it remains prudent in its investments
and AI-related new business initiatives;(3) it demonstrates
a balanced use of all funding channels as it expands its business scale
and scope, while maintaining a strong financial profile, and
(4) Du Xiaoman will not require additional funding from its shareholders,
including Baidu.

The rating outlook could revert to stable if Baidu: (1) fails to
maintain a steady EBITDA trend, due to a decline in its market share,
in turn affecting its revenue growth and/or cash flow generation;
(2) engages in aggressive investments or acquisitions that pressure its
balance sheet liquidity or raise its overall risk profile; or (3)
experiences financial stress or capital calls from Du Xiaoman.

The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.

Established in 2000 and listed on the NASDAQ in 2005, Baidu Inc.
is a dominant player in China's Internet search market, capturing
more than 80% of the market by revenue and in excess of 70%
by PC and mobile page views. In addition to its online search engine,
Baidu offers a wide range of diversified products that boost traffic and
enhance user stickiness.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt,
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